Coventry Health stock falls on membership outlook

CarolynPritchard

SAN FRANCISCO (MarketWatch) -- Coventry Health Care Inc. shares ended in negative territory Friday after the company posted a rise in second-quarter profit and lifted its full-year earnings forecast but said membership growth is seen coming in near the low end of its forecast.

Shares of the Bethesda, Md.-based managed health-care services provider
CV.H, +0.00%
retraced some of their earlier losses to close at $51.86, down $2.05.

Yesterday, Aetna Inc.
AET, -0.61%
shares ended at a 17-month low after the health insurer forecast an increase in its claims costs and lowered its full-year membership forecast. See full story.

J.P. Morgan maintained its neutral rating on Coventry. "Despite raising its second-quarter earnings-per-share guidance by 2 cents, Conventry's revised guidance for other key data points includes a movement toward the low end of its 1%-3% membership guidance," which includes accordingly lower risk revenue and lower management service revenues outlooks, analyst William Georges wrote in a morning note.

Coventry Health said it earned $135.5 million, or 84 cents a share, in the three-month period ended June 30, compared with $129.5 million, or 79 cents, in the 2005 second quarter. The latest quarter's results included a loss of 1 cent a share related to Medicare Part D.

Total operating revenue rose to $1.94 billion from $1.65 billion.

Analysts, on average, had forecast a profit of 82 cents a share on revenue of $1.97 billion, according to estimates compiled by Thomson First Call.

In April, Coventry Health had pegged second-quarter earnings at 80 cents to 82 cents on revenue of $1.92 billion to $1.97 billion.

The company's health-plan membership rose by 75,000 members from a year ago, to 2.54 million, but this was down by 8,000 from the prior quarter primarily as a result of losses in Medicaid membership.

Membership in Medicare Part D, which provides prescription-drug benefits to seniors, was 663,000, up from 529,000 as of March 31.

Coventry Health's medical-loss ratio, which reflects claims as a percentage of premiums, was 78.6%, up from 77.1% in the year-ago second quarter.

Second-quarter health-plan days in claims payable were 53.8, down from 55.2 days in the first quarter and down from 54.7 days in the year-ago second quarter.

As for the third quarter, Coventry Health expects to earn 90 cents to 92 cents a share on revenue of $1.9 to $1.95 billion.

And for the year, the company forecast earnings of $3.44 to $3.50 a share, as well as consolidated revenue of $7.7 billion to $7.825 billion. In April, management projected a profit of $3.42 to $3.48 a share.

Analysts' average forecasts, as derived by First Call, stand at earnings of 93 cents a share and revenue of about $2 billion for the third quarter. For 2006, analysts are targeting earnings of $3.49 a share for the company, on average

Health-plan membership for the year is expected to grow toward the low end of the company's prior forecast of 1% to 3%, Coventry Health said. Its medical-loss ratio is expected to be 79.7% to 80%.

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